U.K. non-life market strong, but not for long: Fitch

The U.K. non-life insurance market has enjoyed stronger results in the past two year, but this kind of improvement is unlikely to last, predicts Fitch Ratings.In a new report, “Enjoy it While it Lasts but not too much”, the rating agency says improved underwriting combined with “benign” financial markets and a lack of domestic catastrophes, have lead to improved results and allowed many insurers to rebuild capital. This improvement should be sufficient to “ride out the challenges” of the coming year, thus the rater maintains a stable outlook on the industry overall.However, price competition is expected to intensify, squeezing underwriting margins, while insurer continue to feel the effects of reserve strengthening related to the 1997-2001 loss years, as well as asbestos. “Developments in regulation and risks relating to flooding, asbestos and the cost of litigation will pose further challenges to the sector,” Fitch says.In terms of flooding risk, while 2004 was a below-average loss year, such losses are generally on the rise. And with more and more housing being built on flood plains, this remains the largest domestic catastrophe risk in the U.K. At the same time, liability claims have grown by an annual average rate of 8.8% over the past 20 years in the U.K. And while the U.K. government says it will take steps to curb the “compensation culture”, U.K. insurers continue to be exposed to the effects of rising liability costs in the United States, where little headway has been made on litigation reform at the federal level.And, like their U.S. counterparts, U.K. insurers are facing a regulatory crackdown on conflicts of interest in broker compensation. “Fitch expects that the greatest impact of the regulatory changes, which the industry will experience in the coming years, will be in the amount of management time and resources that insurers will need to devote to managing new and enhanced regulatory requirements”